CEO says cultural differences scuttled Omnicom-Publicis merger

May 09, 2014|By Robert Channick | Tribune staff reporter

Maurice Levy, chief executive officer of Publicis Groupe SA, left, and John Wren, chief executive officer of Omnicom Group Inc., shake hands after signing the merger deal during a news conference at the Publicis headquarters in Paris, France, on Sunday, July 28, 2013. Publicis Groupe SA and Omnicom Group Inc. agreed to merge in an all-stock transaction to create the world's largest advertising company with $23 billion in revenue, toppling market leader WPP Plc. (Balint Porneczi / Bloomberg)

The decision to abandon the combination of Omnicom and Publicis, which would have brought five major Chicago advertising agencies into one holding company, avoided “a bad marriage,” according to John Wren, Omnicom’s chief executive.

In a conference call Friday morning, he said nine months after striking the deal, there was “no finish line in sight,” prompting both sides to call off what had been billed as a merger of equals.

“In the end, with respect to how the combined company would run, we were unable to reach decisions on management and other key issues, despite our best efforts,” Wren said.

The proposed $35 billion merger, struck in July, would have created the world's largest advertising holding company. Bringing together New York-based Omnicom Group and Paris-based Publicis Groupe would also have greatly impacted the Chicago advertising market.

Chicago-based Leo Burnett is part of Publicis, as is Digitas Chicago. DDB Chicago and Energy BBDO are part of Omnicom. Chicago-based Starcom MediaVest Group, the largest media buying agency in the world, is also part of Publicis.

Wren said the cultural differences of the two advertising giants were essentially too great, and didn’t bode well for running what would be one very large multinational company. They agreed to call off the deal in a joint statement issued Thursday.

“We knew there would be differences in the corporate cultures of Omnicom and Publicis,” Wren said Friday. “That is to be expected anytime strong management teams are coming together. But I know now that we had underestimated the depth of these differences.”

In the close-knit Chicago advertising community, reaction to the breakup was somewhat muted. Several agency CEOs declined to comment, while others agreed to speak only on background.

All agreed that any initial excitement over possible synergies had long since dissipated as the deal dragged on.

“I think we’re all disappointed, because it came in with such promise, and I think we all felt like this just made such great sense and we’re so compatible,” said one CEO, whose agency would have become part of the combined Publicis Omnicom group.

Another CEO, whose agency was also involved in the deal, said it has been business as usual -- before, during and after the merger fell apart.

“From a creative agency perspective it was never going to affect our lives,” said the Chicago agency CEO. “It is no big deal.”

On Friday, Omnicom said it had spent between $55 million and $60 million for professional fees and services as it worked toward closing the stalled deal. Locally, there was no activity at the agency level in preparation for the merger, according to several Chicago CEOs.

The agencies were told not to share information with competitors before the merger was completed, an order that was never rescinded.

“We were instructed not to take matters into our hands,” said the second agency CEO. “We were instructed to not do a thing.”

While no official word trickled down to the agencies until Thursday night’s announcement, by January there was suspicion that the deal was in jeopardy. But the cultural differences at the top didn’t necessarily reflect the working relationships in Chicago.

“I think it would have been good for us,” said the first agency CEO. “It’s kind of a missed opportunity.”

Peter Krivkovich, Chicago-based chairman and CEO of Cramer-Krasselt, one of the largest independent agencies in the U.S, also saw the breakup as something of a missed opportunity. He said further consolidation would have encouraged brands to invite his agency to more pitches, if only to get an outside perspective.

“It might have been some minute advantage for us, if it was all consolidated,” Krivkovich said. “But in reality, on a day-to-day basis, I don’t think it would have changed anything for either those agencies that were being consolidated or frankly for us.”

Krivkovich said the reasons for the merger were sound, as agencies struggle to compete against companies such as Google for growing digital advertising dollars, which now account for 25 percent of the global ad spend, according to eMarketer. As such, he expects merger and acquisition activity to heat up again among the holding companies.

“I think now there will be another merger somewhere in the making,” Krivkovich said.

As for Omnicom’s Wren, the broken engagement has left him wary of another union on the scale of that with Publicis.

“I think it will be a very long time before I try to do a merger of equals again,” Wren said.